Explain how the real interest rate could be negative and how this ...

[Hungry!]

Explain how the real interest rate could be negative and how this situation would benefit the borrower.
 
  What will be an ideal response?

Question 2

If the dollar appreciates against the peso it means that U.S. goods become more expensive in Mexico.
 
  Indicate whether the statement is true or false

[elyse44]

Answer to Question 1

When people borrow money, they pay a nominal interest rate to the lender. Inflation decreases the real buying power of the payments made to repay the loan. If the inflation rate is greater than the nominal interest rate, then the real interest rate is negative. In this case, the lender actually loses by lending money to the borrower because the quantity of goods and services the lender can buy with the proceeds of the loan has actually decreased.

Answer to Question 2

TRUE

[Hungry!]

Thanks for the timely response, appreciate it

[hramirez205]

YES! Correct, THANKS for helping me on my review